For the past four quarters, profits at the commercial-truck leasing and logistics company have outpaced expectations because of stronger rental demand and an increase in the number of miles driven per lease. Rentals from a broad swath of industries have started to pick up, along with the flow of goods on North American highways. Another sign of momentum at Ryder: More companies are renewing their truck leases, typically 5-to-7-year contracts, since the middle of last year. That brings in more money and cuts Ryder's maintenance costs as the renewals allow it to buy new trucks and refresh its fleet.

"The story at Ryder the next five to 10 years is about growth," says President and Chief Executive Robert Sanchez, a 20-year veteran of the company.

He isn't referring just to the growth that comes from tracking a revived economy. The company (ticker: R), says Sanchez, is trying to exploit "a big opportunity" to gain more share of the private-fleet market, about 4.2 million trucks, in the U.S. and Canada. Only about 10% of the market is leased. It also wants to grab more of the $1.5 trillion spent on logistics in North America, of which only $115 billion is outsourced. Corporate customers increasingly are looking at this outsourcing option, essentially handing off these functions by leasing from Ryder, because overseeing a fleet of trucks is getting more expensive and complex. Managing supply chains and distribution is equally tough. Ryder provides drivers, offers services like maintenance and safety inspections, and is adding more-flexible lease arrangements to win additional business and get closer to its customers.

"If they can get back to peak margins, the stock will be in the low 70s a year from now," says Thomas Browne, a portfolio manager at Keeley Asset Management in Chicago who owns the shares in the
Keeley Mid Cap Dividend Value
fund (KMDVX). Ryder had 6.5% pretax margins at its peak in 2008 compared with 5.5% in its most recent quarter.

Wall Street sees the company delivering at the high end of forecast earnings of $4.70 to $4.85 a share this year, up 10% from last year. Ryder earned about $4.50 a share at 2008's peak. Revenue is expected to climb to $6.5 billion, up about 4% from the previous year.

Kevin Sterling, an analyst at Richmond, Va.-based BB&T Capital Markets, expects earnings in this cycle to approach $6 a share, warranting a stock price of $75 a share. The higher price would result from earnings and margins that exceed those of the last peak and command a slightly higher multiple. Ryder currently trades at about 11 times 2014 consensus estimates of $5.49 a share, though earnings are expected to rise by 13% from this year. The dividend yield is 2%.

THE BUDGET UNCERTAINTIES in Washington and their potential economic consequences have hamstrung corporate decision making again this year. Yet Ryder's most recent quarter points to better times ahead: Rising rental demand tends to lead to a stronger leasing cycle, as companies turn first to the shorter-term and higher-priced rental options in the early stages of economic recovery. Later, those rentals convert into longer-term leases as business trends improve and confidence builds.

None

The number of miles logged on Ryder's leased vehicles has been steadily rising, typically a sign that more vehicles will need to be leased to meet demand. In the first quarter, miles per leased vehicle were up more than 4%, the biggest jump since the fourth quarter of 2010 and the fourth straight quarter of year-over-year gains.

More companies are being forced to decide whether to lease or own because the nation's trucking fleet "is as old as it's ever been," says Noel Perry, managing director and senior consultant at FTR Associates, a transportation-forecasting firm in Bloomington, Ind. The average age of the fleet is five to six years, partly because trucks are more durable than ever, but also because companies put off replacing vehicles in the recession. At the same time, the price of new trucks has risen since new emissions standards were implemented in 2010. On average, the price of a new truck is up 30%-50% since 2007 and financing isn't as available as it once was, particularly for smaller companies.

Maintenance costs are up, too: An aging fleet requires more repair, and parts on the new trucks are more complex and expensive. And freight rates aren't rising at a pace that would make new equipment affordable.

The Bottom Line

Ryder shares could rise about 20% to $75 as the company heads into a new, stronger cycle for truck leasing and runs more corporate fleets.

Adding to the difficulties is a serious shortage of drivers, a situation expected to worsen this summer when new federal regulations limiting the number of hours truckers drive each week go into effect in July. The shortage is expected to be exacerbated by other regulatory proposals, including a more stringent medical review of a driver's health. All of which makes leasing a truck–and services–from Ryder a whole lot more attractive than owning.